Who is paying to keep India's offshore wind ambitions afloat?  - BQ Prime

Who is paying to keep India’s offshore wind ambitions afloat? – BQ Prime

Seven years. Two goals. However, there is no project in sight.

This is the story of India’s ambitions in offshore wind. It has been more than half a decade since the country announced a policy to build large wind turbines to produce electricity in the open sea. Nobody took off.

The country has planned 5 gigawatts of offshore capacity by 2022, and 30 gigawatts by 2030. The first planned 1 gigawatt project off the coast of Gujarat attracted the interest of 35 developers in 2018. But the tender is yet to come out.

“Things abroad have been very slow,” said Tulsi Tanti, president of the Indian Wind Turbine Manufacturers Association and Suzlon Group.

“Such projects are not viable unless they are backed by feasibility gap financing,” he said, referring to the support provided to offset losses. “Many players were interested but because of the uncertainty of tariffs.”

The pace of the snail’s progress belies the country’s vast potential for harnessing offshore wind energy. According to the central government’s own estimates, the 7,600 km coastline could generate 140 gigawatts of power by 2050. This is more than half of the country’s peak energy demand of 201 gigawatts.

There are clear advantages to an offshore wind system over conventional energy sources. It has much better vegetative load factors of 50-55% compared to 30-35% for onshore wind and solar. There is no requirement for land tenure, and it is usually a long-term process, which makes the establishment of factories more smoothly.

Offshore wind is also a compelling addition to the energy mix, especially given the ambition to phase out coal. It can take care of the energy requirements in the evening, when the wind speed is higher, the energy demand is at its peak and solar power is intermittent. Replacing 1 GW of coal would require at least 3 GW of solar energy. The proportions are much better with offshore winds, which means that less installation can attract more energy.

Tata Power Renewables recently signed a Memorandum of Understanding with German company RWE Renewables for offshore wind energy exploration. Indian Energy Minister RK Singh also promised that the government would invite bids for up to 2 gigawatts of projects soon and invited European countries to invest.

However, the problem of high capital costs still exists. Offshore wind turbines can cost up to three times the cost of onshore equipment, according to a March 2021 report from the 17th Energy Standing Committee of Lok Sabha. The technical complexity of installation and maintenance drives costs up.

The developers are left asking only one question: Who pays for it?

“The challenge is that higher capex requirements lead to higher tariffs,” Ashish Khanna, President of Tata Power Renewables, told BQ Prime. “When you look at tariffs of about 2-3 rupees per unit for solar and onshore wind, and you look at tariffs abroad, which can be multiples of that, why invest the money?”

JMK Research estimates that the tariff for power from offshore wind in India will be between Rs 7-9 per unit, nearly three times that offered by conventional renewables.

To cut costs, India will need to scale up operations at a large scale, said Shishir Garrod, director of renewable energy technologies at the Institute of Energy and Resources. “But getting to that level of scale without any prior experience is very difficult.”

Tata Power has said that this is the exact reason for their collaboration with RWE. “We have never worked in this field. Nobody has worked in this country,” Khanna said. “There are countries that followed before us. Let’s learn from them.”

It alludes to European countries such as Germany, the United Kingdom and Denmark, which have made strides in offshore wind power, thanks in part to the massive wind speeds in the North Sea.

Keshish Shah, an energy analyst at the Institute of Energy Economics and Financial Analysis, explains that there has been a massive deflation globally in offshore wind energy prices. On average, he said, the price was about $207 per megawatt-hour in 2010. Now it’s down by three-quarters to about $42 per megawatt-hour.

“In the Indian context, this is about Rs 3.5 per unit,” Shah said. “But this has happened in Europe over the years because they have built capacity and experience. In India, this is completely absent.”

And therein lies the missing piece of the puzzle – the financing feasibility gap.

“Financing the feasibility of capital expenditures and perhaps also on tariffs initially is very important,” Tanti said. “My first and foremost expectation from the central government is to enable VGF on capital expenditures, resulting in an IRR of 14% for the project with a set tariff.”

India provides financial support for public-private infrastructure projects through the Feasibility Gap Financing Scheme. This project has yet to be sanctioned for the first planned offshore wind project in Gujarat.

At a wind energy conference in April, Prabir Kumar Das, Minister of New and Renewable Energy, said the VGF penalty of up to Rs 15,000 crore is pending with the Finance Ministry. If this year comes then bidding for Gujarat tender can go ahead.

BQ Prime is awaiting responses to inquiries about the status of the VGF sent via email to Joint Secretary of the Renewable Ministry Dinesh Dayan and Jagdel, who handles all administrative and financial matters for onshore and offshore wind energy.

There are other ways to save costs, according to Ajay Devaraj, Secretary of the Indian Wind Energy Association. “One way is to develop floating energy islands with other complementary things like solar power or desalination units. That can help lower overall costs.”

This is something that the government of Tamil Nadu is planning to create with the help of the government of Denmark in the Gulf of Mannar.

Another thing to do, Devaraj said, is to start manufacturing larger offshore wind turbines over 60 tons locally.

This is not easy. “Unless manufacturers see a long-term deal for offshore wind, and they see viable business there, they may not want to invest in manufacturing,” Khanna said. “Although if the tenders start flowing, I am very confident that we will have turbines made in India.”

Shah agreed. “We need assemblies and capabilities near the port. It’s a long-term strategy to create a full value chain. I don’t see that happening at least in the medium term.”

India has set a target to install 30 GW of offshore wind by 2030. It missed its previous target of 5 GW by 2022.

Shah said that while goals are not realistic, they should not be seen as set in stone. but rather as a means of giving vision, intent and scope to the industry.

“I’ve always said about India’s goals,” Shah said. “They aim for the moon, so they at least end up on the top of the tree.”

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